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MBAs Wanted: What the DOD Can Learn from Business

New budget realities are driving wrenching transformation at the Department of Defense and throughout the aerospace and defense sector. Retired Air Force Gen. Charles F. Wald, a director with Deloitte Services LP and leader of Deloitte’s DOD practice, weighs in.

There’s no escaping the upheaval taking place across the aerospace and defense sector. A perfect storm of industry dynamics—declining U.S. defense spending as a percent of GDP, technology-fueled transformation, and radical changes to the threat landscape, among others—have players across the DOD and commercial A&D sector struggling to answer some basic questions: What is war? What is defense? What is our role to play?

Deloitte CIO Journal recently caught up with retired Air Force Gen. Charles F. Wald, a director with Deloitte Services LP and leader of Deloitte’s DOD practice, to discuss the transformation taking place throughout the DOD and its impact on the aerospace and defense industry more broadly.

Despite much uncertainty about the future of defense spending, what do we know now?

Gen. Wald: As dramatic as the situation may seem—with $50 billion in forced cuts per year due to sequestration on top of the Budget Control Act, which mandated $487 billion in DOD budget cuts—it’s also important to maintain perspective. Defense as we know it isn’t evaporating overnight. The fiscal year 2014 acquisition funding request for the DOD totals $167.6 billion—$99.3 billion for Procurement-funded, and $67.6 billion for Research, Development, Test and Evaluation (RDT&E)-funded programs. Of this amount, $69.4 billion is for programs that have been designated as Major Defense Acquisition Programs (MDAPs) such as the F-35 Joint Strike Fighter Program, the P-8A Poseidon, the KC-46 Aerial Refueling Tanker, and the Trident II Ballistic Missile, among others.

Aside from highly visible reductions in the largest programs, where else is the DOD looking to make changes and extract more value?

In the civilian (commercial) world, high-tech enablers have long helped companies increase both productivity and effectiveness. Up until recently, we’ve seen resistance to IT solutions within the DOD due to either a lack of appreciation for the underlying problems or a perceived lack of need. More DOD leaders are now acknowledging the need to increase IT capacity—to replace personnel and also to increase mission effectiveness.

An example: Companies operating in a highly regulated industry such as banking or pharmaceuticals understand that data management systems can bring value to regulatory compliance efforts. Meanwhile, the military has an equivalent and growing need in that all video collected on the battlefield must be archived and retrievable for seven years. That’s one of myriad DOD challenges that screams for a sophisticated business solution.

Are you saying military leaders need to start thinking more like business leaders?

I spend a lot of time talking to senior military leadership. I don’t tell them how to fly airplanes, plan operations, or train recruits. But that still leaves vast operational areas that are ripe for improvement.

When the DOD identifies promising officers with the potential to become senior officers, it should send them to business school. Many active duty officers are sorely lacking in business acumen. Business is not an intuitive skill set, especially for those who gravitate to the military. Very few go into it thinking, “I want to come out a better business person.”

There’s little emphasis on ROI at the DOD. Rather than applying common sense business practices like reducing overhead and increasing productivity, there’s a general tendency to throw money at problems until they get it right.

For the past 10 years, the U.S. has invested roughly $700 billion annually in defense. That’s vastly larger than any business. Yet businesses of a certain size have C-suites. They have people who do this for a living, with the ability to make and justify investment decisions; understand balance sheets and return on share; identify and fill gaps; and prioritize resources.

You’ve spoken elsewhere about “affordable high-tech.” What is it and what does it mean for the DOD?

Some people automatically equate high tech with high cost. I use that term because I see quite the opposite. Many high-tech solutions are not only affordable with respect to top-line investment but also needed as a way avoid massive cost down the road. High-tech is a powerful enabler with demonstrated value across many non-combat and combat domains.

Consider applications for affordable high-tech in combat. Night vision capability, GPS equipment, satellite communications, and laser range finders: these are just a few examples of affordable high-tech that has given the military a significant battlefield advantage. Not only do these technologies cost significantly less to procure than fighter jets and bombs, they also increase the precision and sophistication to operations, so that significantly fewer of those more expensive assets are needed to accomplish the mission.

Going forward, the DOD will spend less overall and certainly much less on conventional warfare and weaponry. But it will increase investment in other areas—in hardware and software for communications, information systems, cyber warfare, and high-tech equipment for special operations forces. A soldier can do an awful lot with a smartphone and a suite of apps. But that also requires a highly effective information assurance strategy to protect and safeguard the devices and their contents.

That’s one of many business-focused areas of investment we foresee under the umbrella of affordable high-tech. The DOD has opportunities to reduce redundancies through increased use of shared services, potentially save up to $10 billion by employing performance-based logistics, improve compliance—as in the video archive example—and much more.

The DOD could make soldiers safer, increase mission effectiveness, and cut costs with targeted, affordable high-tech investments aimed at improving energy and water management. In Iraq and Afghanistan, the majority of casualties were caused by improvised explosive devices—very often targeted at convoys. The majority of those convoys carried water for troops and fuel to run the generators that power computers and all manner of other equipment. Taking into account the cost of overhead protection provided to convoys by helicopters, that fuel may cost $400 per gallon. The list of affordable high investment opportunities goes on and on.

You’re talking about a massive cultural shift. Is it taking hold anywhere within the DOD?

In 2008, Congress set up in the DOD the Office of the Deputy Chief Management Officer (DCMO) with a mission to cut $7 billion of inefficiency out of non-combat, day-to-day operations—data centers, procurement, personnel, and the like—using demonstrated business practices.

The mission has tremendous merit but has been difficult to implement due to the massive size and complexity of the operations. Moreover, the Secretary of Defense and the various services (Army, Air Force, Marines, Coast Guard) may not always agree on what needs to be done. And there are cultural issues; much of the DOD comprises a career workforce for whom change is difficult. Having said all that, the Office has made progress and will continue to make more.

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